More on my fiction writing

March 06, 2009

A conspiracy of bears?

My economics blog in liberal Seattle has lately attracted a crowd of commenters that would make Phoenix proud. The stock market's decline has nothing to do with the collapse of housing and banking bubbles, with historic levels of debt and all the unwinding of contracts based on leverage, nothing to do with a nation groping against fundamental discontinuity. No, it's Obama's fault. Sure enough, this has become a growing point of attack by the reactionaries, who offer no solutions beyond the failed policies that caused this mess.

But it caused me to think...we have Tim Geitner at Treasury, rather than, say, Joe Stiglitz. We have Larry Summers, and hovering in the background, Bob Rubin, as chief White House economic advisers. Not Robert Reich. Kathleen Sebelius at Health and Human Services, instead of Dr. Howard Dean. Obama insiders rushed to reassure the idiot David Brooks that "they do not see themselves as a group of liberal crusaders. They see
themselves as pragmatists who inherited a government and an economy
that have been thrown out of whack. They’re not engaged in an
ideological project to overturn the Reagan Revolution..."

This may be smart centrist politics. It will be completely inadequate to address the crises before us. Yet it may also mean that Obama realizes that the government was long ago taken over by, let's say a community of interests, that is fundamentally opposed to reform. Does this group have the capacity to bring him into line by collapsing the stock market -- naked short-selling it -- until he yells "uncle"?

I know you think I'm entering tin-foil hat territory here and the next entry will be on the JFK assassination, but stick with me for a moment. Obama is a centrist who at best hopes to restore Clinton-era taxes, the kind of regulatory regime that saw America in such good stead for decades, and try to nudge the nation to "reset" itself for the competitive, social and environmental realities of the 21st century. It's a cautious and conservative approach.

But things have been going off-kilter for so long -- including in the Rubin/Clinton years (albeit with heavy pressure from a militant Republican Congress and Sen. Phil Gramm) -- that even this much change may be unacceptable to the community of interests. Who are they? The shadow banking system -- "the bankers to the banks" --; the very rich (and connected) with their offshore tax havens and Swiss bank accounts; corporations that for years have avoided paying any taxes; the major oil companies that don't want alternative energy or mass transit, or a loss of their tax breaks; big utilities that stand to pay more for a cap-and-trade system; private contractors and the Military Industrial Complex (coined by that commie Dwight Eisenhower). It's a long list. They prospered as never before under George W. Bush, and why should an election change that. Does the private equity, hedge fund and wealthy trader component of this group have the power to drive down share prices even more than economic fundamentals would indicate? Do it to make the president back off?

Makes one wonder.

And it might work. The Internet screamers, many of whom are in the most benighted parts of the country making barely above poverty wages, are merely the useful idiots of the oligarchy. But the millions of Americans who were conned into the stock market and forced into 401(k)s won't be endlessly patient.

Unfortunately, there's no bubble to inflate this time. As the chickens came home to roost under Bush -- years of deindustrialization, stagnant wages, rising income inequality, less economic mobility, etc. -- it was cloaked by two bubbles: housing and credit. Americans thought they were doing OK. Now that's all come crashing down. So even if there's a confluence of pressure by the oligarchy -- no need to call it a conspiracy -- to drive down the Dow, what next? Unfortunately these are the fundamentals of the economy, and trying to revive sprawl, SUVs and subprime empires won't work.

That's ultimately the problem with conspiracies. The conspirators don't know what to do if they succeed. The inept assassin who by bizarre happenstance killed the heir to the Austro-Hungarian throne in 1914 is a case in point. Unfortunately, he touched off the worst conflagration so far in what would prove the bloodiest century. So far.

Comments

You can follow this conversation by subscribing to the comment feed for this post.

I think Obama has a keen sense for the center and operates most effectively in a position that feels like the fulcrum point. He's not going to risk the wrath of the MSM, the Clinton/DLC axis, or Wall Street's big-money guys. A Krugman or Stiglitz will be heard, at most, as the left's Greek chorus. Unless their case begins to move centrist opinion - a possibility - they will have only marginal impact.

This is unfortunate but it's probably realistic. No one fully understands this crisis or its implications. The political noise is mostly coming from the RNC playbook where the principle victim group - white burghers and workers - understand reality through a racial prism. It has less to do with huge deficit spending than the notion that undeserving minorities might benefit.

Obama's core strength is his ability to bridge chasms of ideology, race, and economic status. His presidency represents a huge gamble that we can reconcile enough to endure the most difficult period in post-war history. He has unique qualities and gifts but he isn't Superman. He's not going to re-inflate the bubble or restore the prosperity that felt like an entitlement. If the right triumphs through his defeat, this country is spiritually defeated. There is something Lincolnesque here when a leader willingly embodies the pain and conflict of a beleaguered nation. This crisis already has an epic-like feeling. Interesting times, as they say.

Regarding the "community of interests" attempting to influence policy direction, The Washington Post recently printed a story headlined "Ex-Foes of Health Care Reform Emerge As Supporters".

As the title suggests, an alarming number of The Usual Suspects are now jumping on the Obama bandwagon, apparently in an attempt to co-opt the issue before policy takes a direction they don't like (e.g., a single-payer system like that existing in Canada and most of Western Europe).

The latter, meanwhile, has adopted an unusual idiom (well, not unusual for American politics). Writes the Post:

At the same time, he [Obama] warned advocates on both sides of the ideological spectrum not to misinterpret his ideas. To the "liberal bleeding hearts" hoping for universal health coverage, he cautioned: "I don't think we can solve this problem without talking about costs." And to "those obsessed with costs," he pledged he would not slash the social safety net.

Just smart, centrist politics on Obama's part? Political rhetoric is one thing, but Obama's cabinet appointments, advisers, and circle of new well-wishers has to make any thinking person wonder when and how practice will be able to distinguish itself from rhetoric.

The best way to get a handle on costs in the health care system is to ask the obvious and explicit question, where are those costs coming from? Cui bono? Who benefits most from the current health care system in which government pays increasingly large bills supported by taxpayer funds and borrowing?

The answer, which Obama seems determined to run in headlong flight from, are healthcare providers themselves: the owners of insurance companies, of hospitals and HMOs, of the pharmaceutical industry, and to a lesser extent, the gatekeepers of the current system, the local administrators and care providers for whom health care is not so much big business as their personal ticket to the gravy train.

So, pardon me for becoming alarmed when these very same interests are the ones suddenly trumpeting the need for "health care reform".

Nobody is even discussing the obvious answer to spiraling health care costs: get rid of the profit motive and the parasitical leeches feeding on the system. Specifically:

(1) Eliminate private health care insurance, replacing it with a single, national, public, non-profit insurance company which takes the entire national population as its pool of insured.

This will dramatically reduce costs because the name of the game in the insurance industry is to keep risk-based premiums affordable by spreading them over a broad pool of insured. The idea is that because most individuals are healthy, their premiums will offset the costs of providing care to the sick. But take note: there is no larger pool than the entire U.S. population!

It will also dramatically decrease costs because large amounts of overhead in the private health care system go not to providing health care, but to providing fat profits to the system's billionaire owners, and the executive administrators and other lesser parasites who swim with the sharks in order to get their leavings. So, eliminate the owners' cut of revenues, and pare down the income stream to executive administrators and care providers, and costs decline enormously.

Finally, this will reduce costs by eliminating duplicate administration among countless private companies, each one of which must have its own, separate administrative system.

(2) Do the same thing for the pharmaceutical industry: eliminate private profits and base costs on actual production inputs, budgeting research and development and setting goals based on serious public health needs, not wealth-producing gimmicks.

Yes, that does leave a lot to work out, but I suspect that there is a substantial amount of already existing academic research on exactly such proposals; and in any case the details cannot be worked out if political leaders are unwilling to raise the very proposition because it represents such a threat to powerful economic interests as to be taboo.

I don't have enough online time to address the question of an economic conspiracy (maybe later), but questions of conspiracy are often counterproductive in the absence of evidence -- it's like handing your critics a big stick and saying "Here, beat me").

Emil, you're right that discussion of a single-payer system is taboo. And the reason is as obvious as it is frustrating. Private health insurance companies are a multi-billion dollar industry. That's why even Hillary didn't dare broach the subject last year. Pols find out the hard way who not to offend.

If America was different, Obama would be as well. Or, perhaps we could say that reality is correspondent to our collective beliefs while not necessarily being subject to them. I know liberals who unconsciously parrot the line about Canadian health care being a cesspool of socialism and waiting lines. I patiently walk them through the pertinent stats - the lower costs and better outcomes - and it hardly matters. America is very nearly a game show: Whose Reality Is It, Anyway? As we keep finding out, it's the right's.

The incremental and cautious steps Obama takes illustrate the costs of our consensus reality. But he can only lead the nation we've got, not the one we wish we were. As it stands, this cautious and innately conservative man raises shrieks of outrage for being a socialist. In six months, the protest will be a gale, and in a year, a hurricane. There is no left to speak of in America, and Obama has only so much time to do so much good. As tentative as his half-steps are, what are the alternatives?

Just to illustrate my point, here is someone who was charged more than $5,000 for a two hour ER stay (no bed) in which he was diagnosed with vertigo, given a multivitamin IV and some tests, and sent home. The individual in question is from Germany and he couldn't believe the costs. Note that the bill from the hospital is itemized, so scroll down to see the details:

Here's another instance of a hospital bill for the delivery of a baby, in excess of $10,000 which other commenters at the site called normal, except for one who had a C-section that cost in excess of $30,000. Some of the other comments are also enlightening, such as the appendectomy patient in hospital for 27 hours whose bill was considerably higher than this (than $10,000).

Now, who is getting rich from this? It isn't the patients. It isn't the taxpayers who support Medicare, COBRA, or other programs. It isn't the ordinary private insurance subscriber who pays premiums supporting this. It's the hospital owners, their executives, their suppliers, and some of the care providers; and assorted other private leeches along the health-care feeding chain, whose multiple layers jack up medical costs. In other words, greedy private profiteers.

As for Soleri, who asks what is to be done, might it not be a worthwhile social good to use the pulpit of the presidency to explain the situation, directly to the American public, on television, simulcast on radio, and with permanent websites advertised to them?

Explain exactly who the players are, why reform is so difficult, why a fully public healthcare system would save them and their descendents enormous sums of money without compromising care; and then, if shot down by monied special interests and the legislators they influence, using this same bully pulpit to shine the light of publicity on them, and explain how the political system works and why genuine campaign finance reform is necessary?

I agree that Obama is a product of the system, but more than some of his liberal admirers would believe. Reagan and Bush were partisans who used both the Cabinet, the Executive agencies, and the bureaucracy to full effect in pushing their agendas. I'd like to see a progressive candidate do the same -- particularly once he has won office and belongs to the majority party.

Emil, I like your scenario but it involves a character playing the president who isn't anything like Obama. BTW, you're right that the Reagan and Bush presidencies were highly ideological. But the difference is that they already had much of the media, the business roundtable types, right-wing tanks wired to the media, talk-radio's megaphones and God's megachurches, and a willingness to play hardball with Congress.

Now, note the way Democrats must genuflect before the media, slavishly promise bipartisanship, twit and ignore its own left wing, and act goo-goo when acting cutthroat might suggest core beliefs and resolve.

Why is this?

You know why. It's what we talk about all the time on this blog. It's why Arizona is the way it is. It's why right-wing extremism is mainstreamed while center-left politics is marginalized. It's why about 25% of this country is hard-right while maybe just 1% is hard-left. It's why right-wing talk radio is a leviathan and left-wing radio is a missing signal.

These things matter because you need to have big horses to help drive the debate. We're lucky to have this blog and a few friends in education and mental health. The power differential between the right and left is enormous and we're feeling it in the way Obama compulsively searches the political matrix for safest place to position himself.

He's been president for less than seven weeks and the knives are already drawn. There are tens of millions of zombified American TV watchers waiting to turn on him the moment the current difficulties become longer-term realities. I've gotten e-mails from liberal friends telling me it's unwise to be pushing health-care reform in the midst of a severe downturn. Obama is keenly aware of how much time he has and how much patience the American people will extend him.

I'm like you in that I want him to be bolder, more assertive, and angrier. But Obama is president of a country too inured to its own pleasures to even imagine deep and difficult change. As much as we might like him and this country to be different, our disappointment isn't going to change him or it.

In the interests of solidarity I'm going to give Soleri the last word on Obama's "practical politics" and eschew partisan squabbling, for now. Without question, Obama is a vast improvement on Bush and does have some progressive policies. Good luck to him on them and let's hope for the best.

Regarding the matter of a conspiracy to wreck Wall Street to undermine the government's policies, I'm (more than a bit) skeptical, because: (a) Obama just isn't that progressive and doesn't represent that big of a threat to the establishment; (b) it would be a bit like cutting off its nose to spite its face.

Still, what do I know about such matters? It's interesting that FDR himself thought something similar when the "recession within a depression" occurred in the fall of 1937:

[Roosevelt] decided big business was trying to ruin the New Deal by causing another depression that voters would react against by voting Republican. It was a "capital strike" said Roosevelt, and he ordered the Federal Bureau of Investigation to look for a criminal conspiracy (they found none). Roosevelt moved left and unleashed a rhetorical campaign against monopoly power, which was cast as the cause of the new crisis. Ickes attacked automaker Henry Ford, steelmaker Tom Girdler, and the superrich "Sixty Families" who supposedly comprised "the living center of the modern industrial oligarchy which dominates the United States." Left unchecked, Ickes warned, they would create "big-business Fascist America -- an enslaved America." The President appointed Robert Jackson as the aggressive new director of the antitrust division of the Justice Department, but this effort lost its effectiveness once World War II began and big business was urgently needed to produce war supplies.

Speaking of this, I seldom bother posting comments in response to the reactionary nonsense published in The Arizona Republic, since, as Mr. Talton is fond of pointing out, it's pointless to try to teach opera to a pig, since (a) pigs can't sing and (b) the pig doesn't like it.

However, a large number of cranky New Deal critics have had letters published there lately, and I just couldn't resist. Since it ties in with the subject and with what I wrote above, I present below the latest performance of Die Meistersinger von Phoenix. This response to a letter claiming that the New Deal was a failure because unemployment increased in 1938. Those who wish to see the cranky letter can follow the hyperlink included:

* * *

The "recession within a depression" occurred in the fall of 1937 and lasted 13 months. GDP did fall in 1938, but by 1939 had recovered and exceeded 1937 levels. In fact, GDP grew every year that Roosevelt was in office, from the beginning of the New Deal in 1933, except for 1938. As for unemployment, yes, it spiked during this recessionary year just as GDP declined, but it too subsided. By 1939 it had recovered substantially and by 1940 it was back down to the pre-recessionary level. Note that the United States entered the war on December 7th, 1941.

Note also the reason for the recession AND the reason for the recovery from it: FDR's New Deal had involved larger deficits for stimulus spending, and his administration was under considerable pressure, even from his own party, to balance the budget. At the time, it wasn't understood why this wasn't such a good idea during a depression, and FDR caved in to the pressure. Government spending under FDR had increased every year since 1933 until the budget balancing debacle, when it was decreased for 1937. In the fall of that year the recession hit.

In the spring of 1938 Roosevelt, ignoring critics (including his own Treasury Department) launched a $5 billion spending program to increase mass purchasing power. By the end of the year the recession had ended. You can see the stats for GDP, unemployment, and government spending here:

Note also that what finally and fully brought the country out of depression was not war itself but rather the massive government spending on the manufacturing sector and the full employment policy, both of which were instituted to increase war production. So, government spenders get the last laugh after all. FDR simply wasn't radical enough: it took war for the public to accept the kind of measures which pulled the economy out of depression.

For those who may be interested in this timely subject (the New Deal, and conservative critics of it), here is another instalment of my replies in the aforementioned Arizona Republic thread. Note that I'm not tooting my own horn here, but rather (I hope) this deals succinctly with some faulty assertions you may commonly run across in dealing with reactionary rhetoric. Of course, Obama's stimulus program is by no means equivalent to the New Deal, and it has its progressive critics as well. Still, the broader criticism of government intervention can be handily answered.

* * *

Regarding tk6078's comment that the New Deal "created jobs but not wealth", I strongly disagree.
.
American manufacturing employment was at a decades long low in 1932; during the first phase of the New Deal, factory employment was restored, by 1937, to the highest pre-Depression levels in decades (i.e., 1929 at the height of the boom, and 1920 during the First World War when government spending was 30 percent of GDP). Note that manufacturing employment, too, faltered during the recession of 1938, but climbed to new heights thereafter. And this despite the fact that the National Recovery Administration and other New Deal components were found unconstitutional (by a conservative U.S. Supreme Court) in May, 1935 -- but by that time manufacturing employment had grown by 22 percent in the two years since May, 1933.

As for Rockwell's comment about pre-war "Arsenal of Democracy" spending, this could only have contributed marginally to the recovery: in 1940, federal government spending as a percentage of GDP was actually less than in 1936 (9.8 percent versus 10.5 percent). Remember, America was, before Pearl Harbor, largely isolationist in sentiment, so spending on foreign wars was limited. In 1941 U.S. government spending as a percentage of GDP jumped to 12 percent, but it wasn't until 1942 that the war effort really took off: federal spending as a percentage of GDP was then 24.3, and in 1943 it jumped to 43.6 percent of GDP, staying above 40 percent of GDP for two more years before beginning to ramp down again.